Houston Still A Hot Real Estate Market, Somehow

So how is it that local home sales have dropped for 13 months in a row while Houston’s commercial real estate market is rated one of the top ten in the country?

“One is going up in smoke, and the other is about to go up in smoke,” Steve Blank, a senior fellow at the Urban Land Institute, tells Hair Balls.

Two real estate reports were issued earlier this week, and it’s hard to believe they’re both talking about Houston. A report by the Houston Association of Realtors showed homes sales down 30% last month from September, 2007. At the same time, another by the Urban Land Institute showed Houston as one of the top ten markets for commercial real estate in the U.S.

“This is a beauty pageant. It’s just a perception of what the market is like today,” Blank says.

“And Houston does have some things going for it when it comes to commercial real estate, not the least of which is the energy economy. People are looking at that as a stabilizing force. I think that Houston has learned a lot of lessons from prior days of overbuilding, lessons that other cities haven’t learned.

“The medical business and the Medical Center have been stalwarts of the Houston economy for a long time,” says Blank. “NASA has had its issues, but year after year, it’s a positive force, a real driver in the area. And having Continental based in Houston, and having that hub certainly helps.

“Investors want global cities, ports, international airports, access to foreign trade – I think that defines Houston. From an investor’s point of view, those are all positive things that Houston has and a lot of other cities don’t,” Blank says.

“Plus, you have to look at markets like San Diego and Las Vegas where people who usually day-traded stocks were day-trading condos,” says Blank. “That actually worked for a while, then we hit that wall. Houston didn’t do that.”

September’s Hurricane Ike had a very small impact on the commercial side of things but caused a huge dip in housing sales and new construction. The storm actually helped rental properties (which are typically considered commercial properties), because people displaced by the storm sought short-term housing. (Single-family rentals were up 13.5% and townhouse/condo rentals were up 17.5 %.)

According to the HAR report, in September 2007, total dollar volume for Houston properties sold that month was $1.2 billion. This September, it was $857 million. That was a direct result of Ike. Michael Levitin, HAR chairman, says the storm shut down real estate offices across the county, some for as long as two weeks, which affected sales.

Other transactions were postponed so damage could be repaired. “We’re just now starting to catch up to where we were before Ike in the last week or so,” Levitin says.

“Overall, I think there are two factors to look at in Houston’s housing market," he says. "First of all, a lot of times we compare the sales this year to last year, and last year was a record year. So sales are down because of the economy, yes, but also because we’re comparing it to a record year. Second, the national economy is finally hitting Houston. We’ve been doing okay, especially compared to the other parts of the country, but there’s no way to get around uncertainty with the election, and the economy, and the bailouts.

“Right now commercial real estate in Houston still has some very good values, while the housing market has certainly taken a hit,” says Levitin.

Translation: If you’re trying to sell your house, you might do better to turn the living room into a lobby and call it an office building.